Reserve Bank likely to maintain status quo on Tuesday

Mumbai: With inflation at subzero level, the Reserve Bank is unlikely to effect any cut in key short- term lending and borrowing rates and cash reserve ratio in the quarterly review of the annual monetary policy on Tuesday.

Reserve Bank governor D Subbarao met Prime Minister Manmohan Singh and finance minister Pranab Mukherjee, as part of the pre-policy consultations, on Friday and bankers felt that any cut in key-rates at this juncture would serve no purpose as already there was surplus liquidity in the system.

A still low demand for credit might also prompt the Reserve Bank to maintain a status-quo in its key rates, bankers said.

“There is enough liquidity in the banking system. Even though, they may keep a headroom to lower the CRR, any cut is unlikely in the current policy. It may leave the repo and reverse repo rates unchanged,” Uco Bank’s chairman and managing director S K Goel told the agency.

In the quarterly review of its annual monetary policy on Tuesday, the central bank is also likely to lay out a clearer roadmap to conduct the government borrowing programme in a smooth manner and may hike the GDP and inflation forecast for FY 10, bankers said.

Given the difficult market conditions, the central bank may relax the NPA norms for stress-ridden sectors and may extend the deadline for loan restructuring, Goel said.

The possibility of hiking the SLR requirement of banks to 25% from the current 24% cannot be completely ruled out, he added.

To arrest the slowdown in economy by stimulating demand, the apex bank trimmed its CRR to 5%, repo and reverse repo rates to 4.75% and 3.25% respectively since October last year.

“RBI may lower the credit, deposit targets for banks as it is difficult to meet those in the prevailing conditions,” Bank of Baroda’s chief economist, Rupa Rege Nitsure said.

In its annual monetary policy, the central bank had set the credit target for banks at 20% and deposit base at 18%.

With the economy showing signs of recovery and there are chances of the central bank reviewing its GDP and inflation targets for the fiscal to 6-6.5% and 5% respectively as against 6% and 4.5% projected earlier, Nitsure said.

Any change in the RBI key rates is unlikely in view of excess liquidity in the system, Nitsure said.

The Central Bank is widely expected to come out with a clearer picture on how to go about with the massive government borrowing programme by doing it an orderly manner, causing less disruptions in the market.

Kotak Mahindra Bank’s group head of retail liabilities K V S Manian said that a slew of measures are likely to alleviate the pressure on banks on account of large defaults.

This may include the extension of loan restructuring facility till December, Manian said.

In a meeting with RBI Governor, bankers had asked for the extension of loan restructuring facility till December as against the earlier deadline of 30 June.

They also wanted the central bank to ease the NPA norms in certain sectors, particularly infrastructure.